Mixing Oil and WaterTwo Issues Plaguing Our Industry Are Treating Export Packaging and Canadian Softwood Exports to the U.S.

By Ed Brindley Jr.Date Posted: 3/1/2002

It is well known that oil and water simply do not mix. In today’s world of constant change we have our own case of trying to mix the two. Two issues plaguing our industry are treating export packaging and Canadian softwood exports to the U.S.

In this issue, we thoroughly cover the export packaging treatment issue, and our web site (www.palletenterprise.com/pests) carries extensive information. I don’t believe that anybody has researched the issue any more thoroughly than our staff. There has been a great deal of speculation, some of which may become fact after the international plant protection meeting in March.

On the other issue, nobody seems to know when the Canadian/U.S. softwood debate will be decided. There is reason to believe that any resolution will not be permanent. Feelings run so deep on both sides of the border that a conclusive long term resolution is highly improbable.

Today we face a situation where these two issues mix. This involves factual conditions of today’s market and highly likely ones of tomorrow.

Fact 1 — There is no duty on finished pallets shipped from Canada into the U.S. This means that Canadian pallet companies can manufacture or recycle pallets directly into U.S. markets without paying any import duties.

Fact 2 — The Canadian dollar has slipped over the years to where it is taking about $1.60 (Can.) to equal $1.00 (U.S.). The overall cost of pallet manufacturing or recycling in Canada is competitive with that in the U.S.

Fact 3 — The way it currently stands, U.S. pallet companies have to pay duty on Canadian softwood RL lumber. This duty can equal to more than 30%, a huge cost advantage for the Canadians. Canadian pallet companies are certainly in a position to buy RL lumber from Canada’s sawmills cheaper than U.S. pallet plants can buy from the same sources.

Fact 4 — Most U.S. pallet companies on the border are competing against Canadian softwood pallets and have often avoided buying Canadian softwood lumber by using U.S. hardwoods.

Fact 5 — The industry is expecting that hardwood pallets will join softwood pallets requiring heat treatment at some point after the March meeting. Treatment will drive up the cost of hardwood pallets. Industries currently buying hardwood pallets may consider softwood alternatives if they cost less, passing the advantage to Canadian pallet plants..

Fact 6 — Canadian softwood pallets may sell to customers along the border for no more than hardwood pallets sell today. It is standard operating procedure that most low-grade Canadian softwoods are already kiln dried, so no additional drying costs are incurred to meet international heat treating requirements.

Fact 7 — Combining the duty on Canadian RL lumber with duty-free Canadian pallets, Canadian pallet companies will have a significant cost advantage over U.S. manufacturers along the border when hardwood requires treatment. Canadian pallet companies will be able to ship heat treated softwood pallets into the U.S. northern border markets at prices that cannot be matched by U.S. manufacturers. Mixing oil and water (heat treating and duties) is already impacting the U.S. border pallet markets and companies.

Fact 8 — In spite of the fact that heat treatment is not yet required for hardwood pallets, some pallet users are surging ahead any way. Most notably, the automotive industry, which has a heavy U.S.-Canadian border impact, has taken some aggressive moves. For example, in a recent statement, MOPAR Services & Parts is requiring all solid wood packaging materials, both softwood and hardwood, to be compliant with current and pending European regulations. All nonmanufactured wood materials need to be heat treated/kiln dried and identified. While its statement did not identify a date, we have confirmed from two sources that March 1, 2002 is being used as a compliance date.

I am not taking a stand for one country against another, but it seems clear that at this time the treatment and Canadian lumber duty issues are combining to make an unlevel playing field in finished pallets along the U.S./Canadian border. Oil and water just don’t mix!

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